ABLI says Long Island recovery still in 1st gear

Real Estate Weekly, March 2, 1994

The Association for a Better Long Island (ABLI), which represents some $15 billion in commercial, industrial, retail and residential real estate, has issued its 1994 economic outlook for Long Island, which suggests an economic recovery is still in first gear, with resulting modest gains in key indicators.

Desmond Ryan, executive director of the ABLI, said "This data will be incorporated into the ABLI Nassau County Budget Analysis Committee now meeting for the purpose of providing financial guidance, advise and counsel to members of the Nassau County Board of Supervisors and the County Executive's Office. We are consistent that a county budget cannot be created in a vacuum without trader-standing the health of the regional economy. It is this type of substantive information that should ultimately drive the county budget decision making process."

ABLI economist Thomas Conoscenti said "Driven by an improving national economy, the recovery in regional business conditions will gather strength in 1994. But the rate of improvement will be slow and gradual. The severity of the regional downturn which began in 1989, coupled with the deep defense cutbacks, means that it will take years for the local economy to recover from the losses incurred during the 19891992 recession."

Employment Trends

Tracking employment levels, the ABLI report suggests that the high growth years for Long Island were 1983 through 1987, when an average of 36,000 new jobs were created each year. Over this period, nearly 12,000 manufacturing jobs were created.

The rate of employment growth came to a halt in 1989 and declined in 1990 by 1.2 percent, or 14,000 jobs, as the economy moved into a recession. The rate of contraction accelerated In 1991 as the level of employment tell 4.4 percent, or 49,400 jobs, below its 1990 level. The rate of job loss slackened somewhat in 1992. Even so, the level of employment in 1992 was down by 21,200, or 2.4 percent, to a level of 1,048,000 jobs. In 1993, the Long Island economy continued to lose jobs. In the first nine months of 1993, over 7,000 jobs, or 0.7 percent, were lost from the same period in 1992.

The recession hit the regional manufacturing sector very hard. Since jobs peaked in 1986, over 54,000 manufacturing jobs, mainly defense-related, have been lost. Employment in the construction and trade sectors has likewise declined in response to the weakness in the housing market and consumer spending. Since a peak in 1988, construction jobs are down by 21,700. This represents a loss over one-third of the construction job base. Similarly, jobs in retail and wholesale trade have fallen by about 33,000 over this period.

The region's unemployment rate was at its lowest in 1988 and remained at essentially the same level in 1989 and 1990. Reflecting the severity of the regional downturn, the unemployment rate climbed sharply in 1991 and 1992. In Nassau County, the unemployment rate went from 3.3 percent in 1990 to 6.2 percent in 1992. Over the same period, the unemployment rate increased in Suffolk County from 4.4 to 8.1 percent The unemployment rate for the first nine months of 1993 averaged 5.6 percent in Nassau and 6.9 percent in Suffolk County.

County comparisons

From analysis of the unemployment data, it is clear that Suffolk County has been hit harder by the recession than has Nassau. With a larger construction and manufacturing sector, Suffolk County (especially Brookhaven and the East End) is more vulnerable to swings in economic activity. This suggests that the pace of growth in Suffolk County should exceed that in Nassau County over the next 12 months as the construction industry drives the economy forward.

Better .,times are ahead for the economy of Suffolk County in 1994. After four years of decline, Suffolk's economy has bottomed out and will add jobs in 1994. The regional recovery will be spearheaded by a resurgent construction industry, strong retail spending, an expanding service sector and an accelerating national economy. "Nevertheless, the rebound will be an unimpressive one by historic standards," reminds Conoscenti.

Housing

Like manufacturing, the slump in the housing industry has been a severe drag on the local economy during the recession. The number of permits for residential construction fell from its peak of 11,755 in 1986 to 3,106 in 1991. With lower mortgage rates generating more home sales, permits rose by 12.2 percent in 1992 to 3,486 units and were up 8.7 percent the first eight months of 1993 compared to the same period a year ago. The latest data on housing is encouraging, but the gains are from extremely depressed levels of activity. A strong rebound in housing is necessary for the regional economy to recover from the recession.

Retail Sales

Because of the weakness in employment and housing, since 1989 consumers have been spending their dollars at an anemic pace. Retail sales decreased 0.3 percent in 1992 following declines of 3.5 and 0.6 percent, respectively, in 1990 and 1991.

Looking at the composition of retail sales shows that durable goods purchases account for much of the weakness in consumer demand. Durable goods sales declined 8.1 percent in 1992 following a 1.7 percent drop in 1991, compared to a 15.7 percent average annual increase for the period 1980-1989. The slump in housing and the weakness in local car sales largely account for the lackluster pace of durable goods demand.